Bankruptcy Information
Often times, a person who has had a foreclosure or other collection lawsuits filed against the consumer by a mortgage lender or other collection agency will seek the protections of the Bankruptcy Code to avoid the foreclosure or other lawsuits and also provide extra time for the person to try and protect his assets and get caught up.
The Bankruptcy Code is specifically set up to allow a person some “breathing room” to reorganize or discharge his debts. One of the most common events that may lead a person to file a bankruptcy is a foreclosure.
If a consumer either believes a foreclosure is about to be filed against him or her or a foreclosure is already filed and is nearing the sheriff’s sale date, a person should seek out the advice of a bankruptcy attorney and, assuming the person meets all qualifications, a petition may be filed seeking relief under Chapter 7 or Chapter 13 of the United States Bankruptcy Code.
The two types of bankruptcy that you will most likely encounter in relation to consumer debt are Chapter 7 and Chapter 13 Bankruptcy . Both chapters require the filing of the requisite paperwork with the Court, which lists all of the person’s assets and debts. The Chapter 13 case also requires the filing of a proposed repayment plan which can propose to pay certain unsecured creditors a percentage of their filed claim over a period of time up to five years.
Chapter 7
In a Chapter 7 case, or liquidation, the person must turn over his or her nonexempt property, if any exists, to a trustee, who then converts the property to case and pays the person’s creditors. In a Chapter 7 case, a debtor receives a discharge at the conclusion of the case which releases him or her from the obligation to pay the listed dischargeable debts and orders the creditors not to attempt to collect on the debts directly from the debtor. Specifically as this relates to foreclosure, a Chapter 7 discharge releases the debtor from his or her personal obligation on the Promissory Note. This discharge is as to personal liability only and does not affect the rights of the lender to seize the collateral, or residence.
A discharge in a Chapter 7 bankruptcy also acts as a permanent injunction against any future efforts by any creditor to collect on any listed debt from the debtor personally. Please see an attorney for more information on your options.
Chapter 13
In a Chapter 13 case, the person repays all or a portion of his or her debts under the supervision and protection of the Court. A plan is submitted that designates the amount to be paid to the Trustee and how the debts are to be repaid. The plan must be approved by the Court to become effective. The payments into the plan are typically directly withheld from the debtor’s paycheck and forwarded to the Trustee who disbursed the monies to the creditors in the manner called for in the plan.
In the Northern District of Ohio Bankruptcy Court, mortgage payments on the debtor’s primary residence (where the person actually resides) are the exception to this rule and are paid in full each month directly to the lender. Any arrearage owed by the debtor to the lender at the time the case is filed is normally paid by the trustee.
The goal of the Chapter 13 plan, as it pertains to the mortgage, is to pay off all pre-petition arrearages by the end of the plan period (between three to five years), while maintaining the regular monthly mortgage payments as well, thereby allowing the person to emerge from the Bankruptcy current on the mortgage. All cases are different, and your attorney can recommend which Chapter makes the most sense in your situation.
For detailed information about bankruptcy tips and procedures, you can view the The National Consumer Law Center document here (pdf).